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The IRS recently issued IRS Notice 2020-32. See here. This Notice discusses the tax deductibility status of expenses that are forgiven under the Paycheck Protection Program (“PPP”) provided for by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Under Section 1106 of the CARES Act, up to all of the proceeds of a PPP loan that are used for certain expenses may be forgiven provided that the PPP loan forgiveness requirements are met. These expenses include (1) payroll costs, (2) certain employee benefits relating to healthcare, (3) interest on mortgage obligations, (4) rent, (5) utilities, and (6) interest on any other existing debt obligation (1106 Expenses) that are paid for during an eight week period from the origination date of the PPP loan. That Section also provides that these expenses that would otherwise be includible as gross income but for being forgiven under the PPP are excluded from gross income.
The Notice explains that the CARES Act does not address whether deductions otherwise allowable remain allowable if for payment of 1106 Expenses that are subsequently forgiven under the PPP. After detailing the basis, the Notice clarifies that such otherwise allowable deductions are not allowable if for such pay.
